China

Booming, China Faults U.S. Policy on the Economy: A Response

This article is a response to: “Booming, China Faults U.S. Policy on the Economy.”

The rate of economic growth in Chinese since 1979 has been dizzying. 400 million people lifted out of poverty. Double-digit year-on-year growth since the early 1990s. Such unfettered growth has caused many scholars and bureaucrats to look to China as the new model for growth and development. The Chinese government, rightfully pleased with its superb economic stewardship, has begun asserting itself and wagging a disapproving finger at the U.S. The Chinese criticisms of the U.S. economy in this article were justified, but insightful criticism of a system does not mean that an alternative system is better. Although the Chinese economy may look good now, it is teetering on a broken foundation.

The fatal flaw with the Chinese system is a lack of rule of law. When the central government “opened the door” in 1979, it also decentralized the enforcement of the law and ceded power to local elites. Centrally-promulgated law is now up to international standards, but it is locally and often times arbitrarily enforced, rendering much of it DOA. Indeed, many deals are completed with a handshake instead of a contract. The reason for this is that guanxi, or relationships, are the key factor in determining who gets what, when, why and how. Because of the incestuous relations between local Party elites and business leaders, the state cannot serve its function as a third party enforcer. Rather, the state is part of the system that undermines the importance of the law.

The problem facing China is that it cannot continue to develop as it has, but it does not have a system in place to reign in the pollution and endemic corruption. China is running out of fresh water and its environment is being devastated by polluting factories and industries, which continue to churn out cheap goods for American consumption. Because competition is so fierce and oversight so poor, many factory bosses see cutting corners and polluting as the only way to stay solvent. Thus the economic competition that has created the Chinese economic juggernaut is sowing the seeds of its demise.

As long as local Party elites have a monetary and professional interest in breakneck economic development, they will not willingly close profitable corporations that pollute. And without a strong and independent judiciary, there is no way to enforce all of the centrally-promulgated laws that should preclude any such polluting activities from occurring. Sadly, I do not foresee a law-based system in China developing before the environment has reached the point of no return.

As for the American economy, the Chinese criticisms are important because they speak to a lack of proper regulation (read: lack of effective law). The repeal of the Glass-Stiegel Act during the Clinton Administration and the subsequent emasculation of regulatory and oversight agencies by the Bush Administration has brought the American economy to its knees. Yet because the law is still the final arbiter of justice in America, the passage of new laws that reinvigorate the American regulatory framework should alleviate some of the more acute American economic woes. Despite its current problems, the American economy will rebound because of its strong legal foundation.

The Chinese government is right to fault the Bush Administration for its failure to effectively regulate the American economy. But the irony is that, because of foundational differences, though the disastrous economic policies of the Bush Administration may not destroy the American economy, the brilliant economic stewardship of the Central Government may not be able to save China’s.

© 2008 The Hypermodern.